In commercial real estate, due diligence means taking all reasonable steps to confirm financial, legal, structural, zoning, and environmental concerns.
Last week’s blog provided a brief description of due diligence in commercial real estate as it relates to financial/operational, legal, structural, and environmental concerns. Prospective buyers must seek appropriate professional advice in each of these areas. However, registrants can gain better understanding of the property by asking seller clients specific questions.
36 Questions to Ask Seller Clients [this is not an exhaustive list]
1. Does any other party (e.g., spouse, partnership, joint venture) have an ownership interest in the property?
2. If the seller owns adjoining land, has consent to sever been obtained within the last two years?
3. Is there a plan of survey showing the location of all buildings and improvements? What is the date of the survey?
4. Is the title subject to first right of refusal, option, lease, rental agreement, or other listing?
5. Is the property subject to a Letter of Intent?
6. Is the building/property connected to a municipal sewer? Municipal water? Private or community water system?
7. Do the uses of the property conform with the zoning? If not, is it legal non-conforming?
8. Are you aware of any applications for rezoning within the area?
9. Are you aware of any encroachments, registered easements, or rights-of-way?
10. Are you aware of any restrictive covenants that run with the land?
11. Are you aware of any drainage restrictions?
12. Are you aware of any local levies or unusual taxes being charged at the present time or contemplated? If so, what are they and at what cost?
13. Have you received any notice or claim affecting the property from any person or public body?
14. Are you aware of any public projects planned for the immediate area (e.g., road widening, new highways, expropriations)?
15. Are you aware of any current or pending heritage designations for the property? Is the property in an area designated as heritage?
16. Are there any conditional sales contracts or equipment leases? If so, are they assignable or will they be discharged?
17. Are there any defects in equipment included with the property?
18. What is the approximate age of the building(s) and any addition(s)?
19. Are you operating under a power of sale?
20. Are there vehicular restrictions on the street or feeder streets? (In some cases, heavy trucks can only operate on particular streets between certain hours – e.g., 7 a.m. to 9 p.m.)
21. Has an environmental audit been completed (phase 1, 2, or 3)?
22. Are you aware of any possible environmental problems or soil contamination of any kind on the property or in the immediate area?
23. Are you aware of any waste dumps, disposal sites or landfills in the immediate area?
24. Are you aware of any pending real estate developments or projects in the immediate areas?
25. Is the site subject to flooding?
26. Is the property or any portion thereof under any conservation authority?
27. Are you aware of any structural problems with the building(s) and addition(s)?
28. Have you made any renovations, additions, or improvement? What records are available relating to these, including any final inspection reports and related permits?
29. To the best of your knowledge, has the building(s) and addition(s) ever contained any environmentally hazardous substances (e.g., urea formaldehyde insulation, lead, asbestos)?
30. Are you aware of any deficiencies or noncompliance with the Ontario Fire Code?
31. Are there any problems with the HVAC system?
32. Are you aware of any moisture or water problems in the basement or crawl space?
33. Are you aware of any damage due to wind, fire, water, insects, termites, rodents and/or wood rot?
34. Are you aware of any roof leakage or unrepaired damage? What is the approximate age of the roof?
35. Are you aware of any problems with the electrical system?
36. Is there any lead or galvanized metal plumbing on the property?
Please note: registrants should inform seller clients that they are not legally obligated to answer the above questions except for those that would be considered material latent defects.
What other questions would you ask?
Course 3: Advanced – The Commercial Real Estate Transaction, 2012.